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American Economic Review: Vol. 103 No. 3 (May 2013)

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What Do Instrumental Variable Models Deliver with Discrete Dependent Variables?

Article Citation

Chesher, Andrew, and Adam M. Rosen. 2013. "What Do Instrumental Variable Models Deliver with Discrete Dependent Variables?" American Economic Review, 103(3): 557-62.

DOI: 10.1257/aer.103.3.557

Abstract

We compare nonparametric instrumental variables (IV) models with linear models and 2SLS methods when dependent variables are discrete. A 2SLS method can deliver a consistent estimator of a Local Average Treatment Effect but is not informative about other treatment effect parameters. The IV models set identify a range of interesting structural and treatment effect parameters. We give set identification results for a counterfactual probability and an Average Treatment Effect in a IV binary threshold crossing model. We illustrate using data on female employment and family size (employed by Joshua Angrist and William Evans (1998)) and compare with their LATE estimates.

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Authors

Chesher, Andrew (U College London and CEMMAP, London)
Rosen, Adam M. (U College London and CEMMAP, London)

JEL Classifications

C26: Single Equation Models: Single Variables: Instrumental Variables (IV) Estimation


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